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Hello Readers,

Since the last Newsletter, we closed seven positions; four for gains and three for losses.

ACADIA PHARMACEUTICALS (11/20/08). Closed position 5/4/09 at $2.70 for a 87% GAIN.

INCREDIMAIL (2/20/08). Closed position 5/4/09 at $4.90 for a 53% GAIN.

O2MICRO (3/20/09). Closed position 5/1/09 at $4.42 for a 58% GAIN.

NETWORK ENGINES (6/5/04). Closed position 5/1/09 at 71 cents for a 77% LOSS.

TMNG GLOBAL (4/20/04). Closed position 5/1/09 at 38 cents for a 89% LOSS.

OPNEXT (3/5/09). Closed position 4/30/09 at $2.54 for a 50% GAIN.

REPLIDYNE (4/5/08). Closed position 4/30/09 at 66 cents for a 51% LOSS.

Acadia Pharma had sunk to a dollar and then pulled a Lazarus on news that it entered into a pact with Biovail to develop its Parkinson’s drug. Great revenue and earnings news sent IncrediMail jumping, which is what stocks are suppose to do on this sort of event, but, in this market, it has been a rarity. As we said in the last Newsletter, O2Micro had hit our 50%-plus target and that we were going to close it; the stock rocketed on pretty good earnings news. We have no clue as to what propelled Opnext to hit 50%, but we’ll take it. We, of course, closed Replidyne, since its merger was finalized a few months ago. And yes, we finally closed Network Engines and TNMG Global, our two oldest positions, for losses.

And so, the markets have kept going up, more so on perception than because of reality, thanks mostly to the Fed keeping interest rates artificially low; although there are signs that the markets may be leveling off. This, of course, has led investors into a buying panic on stocks, which they perceive as potentially having better returns than a 2% bank CD. The gist of the problem, as we have alluded over the last six to eight months, is that the government is more focused on restoring financial confidence than it is on fixing the financial system. What happened to all of the toxic assets that were such a huge concern just six weeks ago? They are still there and growing, hourly, as are credit card debts and commercial real estate defaults. So, once again, we warn you to exercise extreme caution.

Here are the headlines since the last Newsletter about companies in our Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates about companies on the “Endangered List” unless we feel the news to be substantial.

Sonic Solutions (SNIC)(5/5/09). To present at J.P. Morgan conference on May 18, the day we post this Newsletter. Slates May 28 for FY2009 earnings call.

Sorl Auto Parts (SORL)(5/5/09). Revenue down from a year ago as company still shows a profit; balance sheet still looks good.

The Hackett Group (HCKT)(4/20/09). Revenues fall from a year earlier but company still ekes out a small gain; balance sheet still looks good.

Durect Corp (DRRX)(4/20/09). Revenues slightly down from a year ago as losses inch up; balance sheet still appears to be good.

CSP, Inc (CSPI)(4/5/09). Posts pretty good revenue and earnings numbers and forecast growth for the rest of the FY; balance sheet still looks okay. (TSCM)(4/5/09). Posts revenue drop and earnings loss; balance sheet still looks strong.

Isilon (ISLN)(3/20/09). Guarantees value and simplicity for scale-out NAS.

Virage Logic (VIRL)(3/5/09). To present at Cowen’s confab on May 27. Recent numbers disappoint; balance sheet still looks strong. Extends stock repurchase program.

TomoTherapy (TOMO)(2/20/09). Recent numbers not great, which seems to be a pattern for most companies this year; balance sheet still looks strong.

Ligand Pharmaceuticals (LGND)(2/20/09). Recent quarterly report shows balance sheet may need to be strengthened in the future.

AuthenTec (AUTH)(2/5/09). To present at the Cowen Technology conference on May 28. Recent numbers not great; balance sheet still looks strong.

SuperGen (SUPG)(2/5/09). MP-470 demonstrates clinical benefit in lung cancer patients. Chief medical officer departs.

MakeMusic (MMUS)(1/20/09). Subscriptions gain 18% over a year earlier to 110,661. Recent numbers show slight revenue gain; balance sheet still seems okay.

Endwave (ENWV)(1/5/09). Awarded development contract from Nokia Siemens networks.

The Orchard Enterprises (ORCD)(11/20/08). Quarterly numbers look okay, as does balance sheet. Wynton Marsalis ends long-term partnership with company. Announces raft of new top artists signings.

Oilsands Quest (BQI)(10/20/08). Closes $29.8 million secondary offering, which, in this market, is amazing; but, this will add to stock dilution.

SCM Microsystems (SCMM)(10/5/08). Completes merger with Hirsch Electronics.

Planar Systems (PLNR)(9/20/08). Recent quarterly report not great; balance sheet looks good as it improves on the cash end.

Endeavour Silver (EXK)(9/5/08). Company releases pretty upbeat quarterly report; balance sheet still looks good.

ICAgen (ICGN)(8/5/08). Balance sheet still looks okay.

Hythiam (HYTM)(8/5/08). Balance sheet weakens and we are placing this on the “Endangered List”.

Applied Energetics (AERG)(7/5/08). Numbers improve over a year ago; balance sheet still looks good. And yes, the stock is in the tank.

Neurobiological Technologies (NTII)(7/5/08). Balance sheet still seems okay as company is looking for a buyer.

Energy Focus (EFOI)(6/5/08). Quarterly results not good as company accelerates transformation to an energy solutions business; balance sheet still looks good.

Bridgeline Software (BLSW)(6/5/08). Reports some pretty good numbers and a record profit for the 2ndQT; balance sheet seems okay but could be better.

Microvision (MVIS)(5/20/08). Posts a pretty bad loss for the quarter; balance sheet still looks good. Announces agreement with Corning for supply of green lasers for microprojectors.

GlobalScape (GSB)(5/20/08). As we said up above, like most companies this year, this one, also, has some lousy quarterly numbers; balance sheet still looks good.

Ziopharm (ZIOP)(5/5/08). Will present data for all three of its clinical-stage product candidates at the annual Oncology meeting from May 29 to June 2. Releases quarterly numbers.

Kopin (KOPN)(4/20/08). Introduces Golden-iTM, what it calls a game changing concept in spontaneous, hands-free wireless telecom.

BioLase (BLTI)(4/5/08). Recent numbers pretty bad, as is balance sheet. We’re placing this on the “Endangered List”.

ActivIdentity (ACTI)(3/5/08). Records some pretty nice revenue numbers, balance sheet seems strong.

Amicas (AMCS)(1/20/08). Recent numbers not overly bad; balance sheet still looks strong.

Nanophase Technologies (NANX)(1/20/08). Recent balance sheet looks good.

Move, Inc (MOVE)(1/5/08). 1stQT numbers reflective of the housing market, which is bad; balance sheet still seems to be strong.

Catalyst Pharmaceuticals (CPRX)(12/20/07). Balance sheet still looks good.

Santarus (SNTS)(11/20/07). Records pretty good revenue and earnings numbers; balance sheet still seems okay.

Continucare (CNU)(11/20/07). Reports record revenue and an 18% jump in net income for 3rdQT FY2009; balance sheet still looks good.

Nucryst Pharmaceuticals (NCST)(10/5/07). As balance sheet weakens, we are also adding this to the “Endangered List”.

American Technology (ATCO)(10/5/07). LRAD assisting military and maritime security forces in fight against piracy. Receives $800,000 LRAD accessory order from U.S. Navy.

XATA Corp (XATA)(9/20/07). Posts really nice revenue numbers while paring losses; balance sheet looks okay but could use more cash.

A.P. Pharma (APPA)(8/5/07). Balance sheet weakens further and we add this one to the “Endangered List”. This is what happens in a bear market when companies are unable to raise money in secondary offerings; the main victims of this have been the small biotechs.

Xenonics (XNN)(6/5/07). Recent quarter not good, but company forecasts higher revenues for rest of FY; balance sheet could be a lot better. Signs SuperVision distribution pact in China.

Oncolytics Biotech (ONCY)(6/5/07). To present data on REOLYSIN clinical trials at ASCO conference May 29 to June 2. Completes patient enrollment in U.S. Phase 2 Sarcoma study. Balance sheet still seems okay but could use improvement.

ECtel (ECTX)(5/5/07). And yes, another one with lousy quarterly numbers; but balance sheet still looks decent.

UQM Technologies (UQM)(2/5/07). To present at the JMP Securities confab on May 18, the day we post this Newsletter. Bus powered by UQM systems achieves over 20 miles per gallon.

Lantronix (LTRX)(12/5/06). Revenues drop but company trims losses over first nine months of current FY; balance sheet still looks good. Lehigh Valley Health Network deploys company’s software to enhance real-time data.

Hydrogenics (HYGS)(9/20/06). Recent balance sheet still looks okay. Announces commissioning of fuel cell buses in Europe.

TRI-S Security (TRIS)(5/5/06). Recent revenue numbers look very good but losses inch up; balance sheet could be a lot better.

Thermogenesis (KOOL)(4/5/06). Recent numbers are so-so, as is balance sheet. This one may soon be place on the “Endangered List”.

TII Network (TIII)(3/20/06). Recent numbers not great; balance sheet still goods good.

8×8 (EGHT)(1/20/06). To host earnings calls on May 21.

RAE Systems (RAE)(10/5/05). Releases some pretty good-looking numbers; balance sheet still looks good.

Nova Measuring (NVMI)(11/5/04). Although balance sheet still seems okay, company has been on this list for far too long, so, we are placing it on the “Endangered List”.

Our picks for this Newsletter are a semiconductor and a health ratings provider, both trading on NASDAQ.

INTELLON CORPORATION (NASDAQ: ITLN) – $2.75. Twelve-month hi-low has been $5.90 – $1.42. Located in Ocala, FL, with about 125 employees, this semiconductor has 31.3 million shares outstanding, $75.73 million in total current assets, $80.55 million in total assets, little debt, and $7.85 million in total liabilities. Institutional ownership is around 44%. Two analysts rate the stock a “strong buy” and one has it as a “hold”.

If you believe the tech gurus, then, sometime over the next six to nine months, tech stocks will lead the next rally and, if that is the case, Intellon Corporation could be part of the tornado heading its way to Oz. The company seems to have a strong balance sheet and is still making money even though the recent quarterly revenues were slightly on the light side.

Founded in 1989, and trading on NASDAQ for less than two years, Intellon is a fabless semiconductor that designs and makes integrated circuits (ICs) for high-speed communications over existing electrical wiring in the U.S. and internationally. Its ICs enable home connectivity, which is the sharing and moving of content among personal computers and other consumer electronic products in the home. The company also sells its ICs for use in powerline communications applications in electric utility and other commercial markets. In the utility market, its ICs enable various smart grid applications, which help utilities monitor and manage in-home electricity consumption during peak periods. In the commercial market, Intellon’s ICs allow the distribution of broadband over existing electrical and coaxial cable to individual units within apartment buildings and other multiple dwelling units. The company sells two families of powerline ICs: HomePlug-based ICs and command and control ICs.

Intellon currently has 31 issued and 32 pending U.S. patents, with foreign counterparts in some jurisdictions. Its initial low-bandwidth Spread Spectrum Carrier (SSC) technology formed the basis for the CEBus and SAE powerline brake monitoring standards; and its PowerPacket technology was chosen as the baseline for the PLC industry’s HomePlug 1.0 specification.

In recent months, the Intellon HomePlug AV ICs were embedded in ZyXel powerline networking kits for Chunghwa Telecom, Taiwan’s largest telco; LEA S.A.S. of France introduced new HomePlug AV-based powerline adapters using Intellon’s newest INT6400 chipset; the INT6400 was selected by Guillemot, a global designer and maker of interactive entertainment hardware and accessories; and Intellon and devolo AG signed a technology licensing agreement as part of ongoing efforts by both companies to develop greener wireline networking solutions.

For FY2008, ending 12/31/08, revenues were $75.37 million with $921,000 in net income compared to FY2007 revenues of $52.31 million and $7.32 million in losses. During the 1stQT of FT2009, ending 3/31/09, revenue was $15.5 million with $5000 in net income. The lousy 1stQT was sort of expected due partially to lower retail sales, which, of course, can be attributed to the bad economy.

Intellon has a lot going on and, sure, it stumbled somewhat during the last quarter, and may do so again over the next several financial periods, but the company appears to be healthy enough to get back on track, barring any unforeseen snags.

Our 24-month target for the stock is $5.00 to $5.50.

For more information, contact ITLN’s Brian McGee at 352-237-7416;

HEALTH GRADES, INC. (NASDAQ: HGRD) – $3.35. Twelve-month hi-low has been $5.80 – $1.16. Based in Golden, CO, with about 160 employees, this medical ratings provider has 28.9 million shares outstanding, $22.72 million in total current assets, $36.33 million in total assets, little long-term debt, and $23.71 million in total liabilities. Institutional ownership is around 50%. Two analysts give the stock a “strong buy”.

With the whole health care system about to be turned upside-down by the Obama administration, Health Grades, Inc. seems to be in the right place at the right time. If all goes accordingly, the company should see its revenue growth and earnings pace continue.

Founded in 1999, and public for over ten years, Health Grades bills itself as the leading healthcare ratings organization, providing proprietary objective healthcare provider ratings on hospitals, nursing homes, physicians, and home health agencies. At the end of 2008, Health Grades provided ratings or profile information relating to nearly 5900 hospitals, 750,000 physicians in 125 specialties, and 15,000 nursing homes. The company offers healthcare information about quality of service, as well as profile information on physicians that enables clients to measure, assess, enhance, and market healthcare quality. It also provides physician-led quality improvement consulting engagements, and other quality improvement analysis and services for hospitals. In addition, the company offers the Connecting Point program under which a physician, hospital, hospital system, or single specialty provider can sponsor applicable physician profiles.

Currently working with more than 400 hospitals, Health Grades provides them programs that offer business development tools and marketing assistance; and offers online healthcare quality information for employers, benefits consulting firms, payers, and other organizations that license its Health Management suite of products. The company also helps more than 40 liability insurance companies, including the top three nursing home and hospital insurers, assess providers’ quality and risk potential. In October, 2008, Health Grades acquired two web sites and

For FY2008, ending 12/31/08, revenues were $39.68 million with net income of $4.69 million compared to FY2007 revenues of $36.16 million and $6.74 million in profit. During the 1stQT of the current FY, ending 3/31/09, revenue was $12.38 million with $1.63 million in net income.

Health Grades is on pace to exceed last FY’s revenues and earnings, and, as we said, the added healthcare spending by the government should be an extra boost.

Our 24-month target for the stock is $5.50 to $6.00.

For more information, contact HGRD’s Allen Dodge at 303-716-0041;

Look for the June 5, 2009 Newsletter to be posted on 6/1 or 6/2.

Have a safe holiday,

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